Process: 569/2017-T

Date: April 5, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 569/2017-T addresses the critical requirements for common-law partners (união de facto) to file joint IRS (Personal Income Tax) returns in Portugal. The case involved two taxpayers who had lived together since 2010 and had a child born in June 2010, but only registered the same fiscal domicile in January 2014. They filed a joint IRS return for 2014, claiming common-law union status. The Portuguese Tax Authority (AT) rejected their joint filing and issued separate assessments (nos. 2017... and 2017...) totaling €14,508.05, arguing that the taxpayers failed to meet the legal requirements under Article 14 of the IRS Code and Law 7/2011. The AT's position centered on the requirement that common-law partners must have identical tax domiciles for at least two years prior to the tax year in question. Since the taxpayers only updated their fiscal domicile to the same address in 2014, the AT determined they could not benefit from the common-law union regime for that year, despite their actual cohabitation since 2010. The taxpayers challenged this decision before CAAD, arguing that the substance of their relationship and cohabitation should prevail over the formal administrative requirement of registered fiscal domicile. This case highlights the tension between substantive reality (actual cohabitation) and formal compliance (registered fiscal domicile) in Portuguese tax law, and underscores the importance of timely updating tax registration data to avoid adverse tax consequences and potential loss of beneficial tax treatment available to common-law couples.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A..., taxpayer no. ... and B..., taxpayer no. ... (hereinafter referred to as Applicants or Taxpayers) both resident at ..., ..., ...-..., municipality of Sintra, submitted on 2017-10-30 a request for constitution of a single arbitral tribunal, in accordance with the provisions of subparagraph a) of no. 1 of article 2, and article 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter referred to as Respondent or TA) is requested, with a view to declaring the nullity of the acts of assessment of Personal Income Tax nos. 2017... and 2017..., both relating to the year 2014, in the total amount of €14,508.05.[1]

  2. The request for constitution of the Single Arbitral Tribunal was accepted by His Excellency the President of CAAD and notified to the Respondent on 2017-10-30.

  3. In accordance with and for the purposes of the provisions of subparagraph a) of no. 2 of article 6 of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed deadlines, the undersigned was appointed as arbitrator and communicated acceptance of the appointment to that Council within the deadline provided for in article 4 of the Deontological Code of the Centre for Administrative Arbitration.

  4. On 2017-12-21 the parties were notified of this appointment, having expressed no intention to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1 subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

  5. The Single Arbitral Tribunal was constituted on 2018-01-11, in accordance with the requirement of subparagraph c) of no. 1 of article 11 of RJAT, in the form given to it by article 228 of Law no. 66-B/2012, of 31 December.

  6. Duly notified to do so, on 2018-02-08 the Respondent submitted its reply and attached the administrative file.

  7. By arbitral order issued on 2018-02-09 the Applicants were notified to comment on the preliminary issue raised by TA regarding the value of the arbitral claim and provided clarifications regarding the correct identification of the underlying assessments.

  8. On 2018-02-16 the Applicants submitted their comments on the preliminary issue in question, provided the requested clarifications, and further attached two documents (nos. 9 and 10), corresponding to Personal Income Tax assessment statements of the Applicants.

  9. On 2018-02-26 an arbitral order was issued in which, for the reasons stated therein, (i) the holding of the meeting referred to in article 18 of RJAT was dispensed with, (ii) the submission of submissions was dispensed with, and (iii) the deadline for rendering the decision and notifying it to the parties was set as the twenty-sixth day of April of two thousand and eighteen.

  10. To support their claim, the Applicants invoked in summary, and relevant to what matters here the following (mentioned mostly by transcription):

10.1. (...) they have lived in a de facto union since the beginning of 2010 (cf. article 1 of the request for arbitral decision),

10.2. (...) from the said union was born on 26 June 2010, a daughter C..., NIF ... (cf. article 2 of the request for arbitral decision and document no. 1 attached thereto),

10.3. Only in January 2014 did the Applicants come to have the same tax domicile (...) at ..., no. ... (former Plot ...) ..., ...- ... ..., municipality of Sintra, where they still reside with their aforementioned daughter (cf. article 4 of the request for arbitral decision)

10.4. (...) on 30 May 2015, they submitted their joint Personal Income Tax Declaration for the year 2014, indicating therein as de facto united (cf. article 5 of the request for arbitral decision and document no. 2 attached thereto)

10.5. On 03 July 2015 the Respondent allegedly initiated a "discrepancy procedure" with respect to the joint declaration in question (cf. article 6 of the request for arbitral decision and document no. 3 attached thereto)

10.6. On 28 July 2015 the Respondent issued notification to the Applicants, for purposes of their exercising the right to Prior Hearing (cf. article 7 of the request for arbitral decision and document no. 4, attached thereto),

10.7. On 29 July 2015 the Applicants exercised with the Respondent their right to Prior Hearing, proceeding to attach their birth certificates and that of their daughter, as well as a certificate issued by the Parish Council of ..., dated 21 July 2016 (cf. article 8 of the request for arbitral decision and documents no. 5 and 5 A attached thereto),

10.8. "(...) on 14 March 2017 the Applicants were notified by TA that 'they did not meet the legally required conditions for the regime of married taxpayers to be applied to them, because the same tax domicile was not verified in the 2 years prior to the year to which the assessment relates'" (cf. article 9 of the request for arbitral decision and document no. 6 attached thereto),

10.9. The Applicants further make various legal considerations in their request for arbitral decision regarding tax domicile and the Personal Income Tax regime applicable to taxpayers in de facto unions,

10.10. Petitioning, in conclusion, that it be "declared illegal, with the consequent annulment, of the acts of separate assessment of Personal Income Tax no. 2017..., of 29.06.2017, and no. 2017..., also of 29.06.2017, both relating to the year 2014 (...)" and "the Respondent condemned to return to the Applicants the retained/paid tax, increased by indemnity interest due in accordance with article 43 of the General Tax Law (...)"

11.1 The TA, duly notified to do so, submitted its reply in a timely manner, arguing for the non-existence of any illegality regarding the assessments at issue, concluding, consequently, for the unfoundedness of the claim formulated by the Applicants, in line, moreover, with the position already expressed by it in the reply it submitted on 2017-03-14 (cf. document no. 6 attached by the Applicants and attached administrative file) regarding the right of hearing exercised by the Applicants:

11.2. Thus it argues, in very brief summary, in defence of its position, and to what is relevant here, that there is no identity of domicile of both Applicants, that what is at issue is the fundamental duty of updating domicile in the Taxpayer Registration and Management System for purposes of combating fraud and tax evasion associated with it, that communication of tax domicile is mandatory and only with this does the tax domicile declared by the taxpayer have effect with respect to TA, that the identity of tax domicile of the Applicants occurred only in 2014,

11.3. To conclude, and in summary, that the requirements provided for neither in Law no. 7/2011, of 11 May, nor, consequently, in article 14 of the Personal Income Tax Code are met, since it considers from the outset that the Applicants did not live, at the time of the assessments in question, for more than two years in a de facto union,

11.4. Being unable, thus, to "benefit from the de facto union regime, since there was no timely communication of the change in their residence so that they could, in 2014, benefit from this regime".

  1. The parties have legal capacity and standing, are legitimate and are duly represented (articles 3, 6 and 15 of the Code of Tax Procedure and Process, ex vi of article 29, no. 1 subparagraph a) of RJAT.

  2. The case does not suffer from any defects, no exceptions have been raised, and there is no obstacle to consideration of the case.

II – REASONING

A. MATTER OF FACT

A.1. Facts found to be proven

  • on 30 May 2015, the Applicants submitted their Personal Income Tax declaration for the year 2014, to which the identification ... was assigned, indicating in the appropriate field of Personal Income Tax model 3, field 6, as civil status "de facto united"

  • on 03 July 2015 the TA initiated a "discrepancy procedure" with code D/31, on the understanding that the legal requirements for de facto union on the part of the Applicants were not met,

  • through official notice/notification dated 28 July 2015 the Applicants were notified to exercise prior hearing which was exercised by them on 29 July 2015, in the terms set out in document no. 5, attached with the request for arbitral decision,

  • through official notice no. ... dated 2017-03-03, the TA notified the Applicants of its intention to disregard the clarifications provided regarding the situation of de facto union,

  • on 2017-06-29 the TA issued to the Applicants assessment notices nos. 2017... and 2017... (documents nos. 7 and 8 attached with the request for arbitral decision),

  • since 20-11-2012 the Applicants have lived in a de facto union (document no. 5-A attached by the Applicants),

  • the Applicants have the same tax domicile located at ... (former Plot ...), ..., in ..., municipality of Sintra, only from January 2014 onwards,

  • on 2017-10-30 the Applicants submitted a request to CAAD for constitution of an arbitral tribunal and for arbitral decision, which gave rise to the present case.

A.2. Facts found to be not proven

There are no facts of relevance to the decision that should be considered as not proven.

A.3. Reasoning for the matter of fact found to be proven and not proven

With respect to the matter of fact the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter to the decision, to discriminate proven from unproven facts [(cf. art. 123 no. 2 of CPPT, and no. 3 of article 607 of the Code of Civil Procedure, applicable, ex vi of article 29, no. 1 subparagraphs a) and b) of RJAT)].

Thus, the facts pertinent to judgment of the case are selected and determined according to their legal relevance, which is established in view of the various solutions to the question(s) of law. (cf. article 596 of CPC, applicable ex vi of article 29, no. 1, subparagraph e) of RJAT).

Thus taking into consideration the positions assumed by the parties, in light of the provisions of article 110, no. 7 of CPPT, the documentary evidence attached to the case, and the attached administrative file, the facts listed above are considered proven, relevant to the decision.

B. ON THE LAW

On the value of the case

  • The TA raised the issue of the value of the arbitral claim, arguing that it should be set at €1,949.35, as a result of the sum of amounts to be reimbursed of €449.38 and €1,499.97, respectively for Applicant A... (NIF...) and Applicant B... (NIF ...), with reference to the Personal Income Tax assessment statements directed to them.

Notified by arbitral order of 2018-02-09 to comment on this and other issues, the Applicants stated that in the present case they do not petition for annulment of the "amounts to be reimbursed", but rather the "declaration of illegality of the acts of separate assessment of Personal Income Tax no. 2017..., of 29.06.2017, and no. 2017..., also of 29.06.2017, both relating to the year 2014 (...)", having further corrected the value of the arbitral claim from €14,514.62 to €14,508.05, and provided clarifications regarding the correct identification of the Personal Income Tax assessments that are in dispute.

The provision of no. 1 of article 296 of the Code of Civil Procedure, ex vi subparagraph e) of no. 1 of article 29 of RJAT, provides that "every case must be assigned a definite value, expressed in legal currency, which represents the immediate economic utility of the claim", while article 97 A) of the Code of Tax Procedure and Process, ex vi subparagraph a) of no. 1 of article 29 of RJAT, provides that "the values to be considered, for purposes of costs or others provided in law, for actions that proceed in tax courts, are as follows: a) when an assessment is impugned, that of the amount whose annulment is sought".

There can be no doubt that the Applicants with the submission of the present request for arbitral decision intend the declaration of annulment of the Personal Income Tax assessments, being unequivocal in that regard the final part of their petition; [be it] "declared illegal, with the consequent annulment, of the acts of separate assessment of Personal Income Tax no. 2017... of 29.06.2017, and 2017..., also of 29.06.2016, both relating to the year 2014 (...)"

The value of the assessments in question being the aforementioned and corrected amount of €14,508.95 is that the value of the economic utility of the claim that is fixed in light of the provisions of the applicable article 306 of the Code of Civil Procedure and, which consequently determines, in light of the regulatory provisions indicated above, the value of the case in the present process, with no reason whatever for the TA regarding the request for amendment of the value that it expressly petitions.

On the merits

In an initial approach, the central issue that is the subject of the case and that must be addressed, in light of the position and arguments presented by the parties, comes down to determining the relevance of the identity of tax domicile of taxpayers in de facto union, during the legally required period, for purposes of applying the Personal Income Tax regime under the same conditions as married taxpayers not legally separated as to persons and property.

Stated in other words, the issue to be decided consists in knowing whether the Applicants could in Personal Income Tax declaration model 3, with reference to tax year 2014, have indicated as civil status "de facto united" and, consequently be taxed under Personal Income Tax by the regime applicable to married taxpayers not legally separated as to persons and property, in accordance with the provisions of article 14 of the Personal Income Tax Code, despite not being registered in the TA's Taxpayer Registration and Management System with the same tax domicile, in the two years prior as provided for in no. 2 of article 1 of Law no. 7/2001 of 11 May.

The regulatory framework, as of the date of the underlying facts, which the issue raises, is outlined as follows, and insofar as is relevant here:

Article 19 of the General Tax Law

"1. The tax domicile of the taxpayer is, save otherwise provided:

a) For natural persons, the place of habitual residence:

(...)

  1. Communication of the domicile of the taxpayer to the tax administration is mandatory, in accordance with law.

  2. A change of domicile is ineffective until it is communicated to the tax administration (...)"

With article 14 of the Personal Income Tax Code (in the form in force as of the date) providing:

De facto unions

"1. Persons living in a de facto union who meet the requirements provided in the respective law may opt for the taxation regime of married taxpayers not legally separated as to persons and property.

  1. The application of the regime referred to in the preceding number depends on the identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the taxation period, as well as on the signature, by both, of the respective income tax declaration.

  2. In the case of exercise of the option referred to in no. 1, the provisions of no. 2 of article 13 apply, with both de facto united being responsible for compliance with tax obligations".

On the other hand, it must also be taken into account what the law protecting de facto unions – Law no. 7/2001, of 11 May, provided at that time (2014-12-31), namely in its articles 1, 2 A) and 3 in the versions introduced thereto by Law no. 23/2010, of 30 August:

Article 1

Object

"2. De facto union is the legal situation of two persons who, regardless of sex, live in conditions analogous to those of spouses for more than two years"

Article 2-A

Proof of De Facto Union

"1. Absent a legal or regulatory provision requiring specific documentary proof, de facto union is proved by any legally admissible means.

  1. In the case of proving de facto union by declaration issued by the competent parish council, the document must be accompanied by a declaration of both members of the de facto union, under commitment of honor, that they have lived in de facto union for more than two years, and by copies of the complete birth registration certificate of each of them"

Article 3

Effects

"Persons living in a de facto union under the conditions provided in this law have the right to [...]

d) Application of the personal income tax regime under the same conditions as married taxpayers not legally separated as to persons and property"

The issue under analysis has already been the subject of various decisions within the scope of tax arbitration, notably, among others, in cases 143/2017-T of 2017-10-20, 11/2017-T of 2017-08-24, 547/2016-T of 2017-04-03, 413/2016-T of 2017-01-10, 773/2015 of 2016-05-03, 564/2015-T of 2016-05-17, 304/2015-T of 2016-01-14, 497/2014-T of 2015-03-06.

In the cases indicated (among others) what was fundamentally at issue, as in the present case, was the non-compliance and/or non-verification on the part of de facto united persons of the "identity of tax domicile of the taxpayers during the period required by law for verification of the requirements of de facto union and during the taxation period, as well as the signature, by both, of the respective income tax declaration".

The TA with respect to this segment anchors itself in the fundamental duty of updating tax domicile, which falls upon the taxpayers, in light of the provisions of article 19 of the General Tax Law, invoking its ineffectiveness while it has not been communicated to the Tax Administration, within the scope of the tax status of de facto union, with obvious disregard for the tax status of "de facto united".

In the case sub judice it concludes that "the Applicants could not benefit from the de facto union regime, since there was no timely communication of the change in their residence so that they could in 2014 benefit from this regime", resuming here the assertion of the Applicants that they have lived in de facto union since the beginning of 2010 but only as of January 2014 did they come to have the same tax domicile.

One could thus summarize, for what is relevant here, that the Tax Administration has been arguing for the understanding that the requirement of identity of tax domicile of taxpayers, during the legally required period, as a formal requirement of the tax status of de facto union, which is based on the duty of updating taxpayer information, appears to be appropriate to the functions of control of the Tax Administration, without violating the limits imposed by fiscal constitutionalism, including the principle of proportionality.

This is in summary the position that the TA has been taking regarding the segment in question.

However, and as has been noted particularly within the scope of the tax arbitral decisions rendered in cases 11/2017-T of 24/08/2017 and 143/2017-T, of 21/10/2017 this has not been the understanding of various arbitral decisions and the jurisprudence of the courts.

In the Decision of the Supreme Administrative Court of 16/11/2016, reported by His Excellency Counselor Aragão Seia (case no. 0761/15) it may be read:

"The requirements contained in article 14, no. 2 of the Personal Income Tax Code, indication of a common address and joint signature of the income tax declaration, can only be seen as formal requirements that facilitate proof before the TA of the said de facto union and, if the interested parties do not comply with such requirements, it is incumbent upon them to prove, by any means, that they can effectively benefit from the regime of de facto union".

"Non-compliance with article 14, no. 2 of the Personal Income Tax Code, in the form in force as of the date of the facts, did not prevent the interested parties from opting for the taxation regime applicable to taxpayers united by marriage".

In the same sense, the Decision of the Central Administrative Court South, of 08/19/2015, reported by Her Excellency Judge Cristina Flora (case no. 06685/13):

"In cases where the taxpayer has not complied with its obligation to communicate the change of tax domicile provided for in art. 19 of the General Tax Law the taxpayer's address in a certain place may be demonstrated through 'justifying facts', and consequently, the failure to communicate tax domicile does not prevent the fulfillment of the requirement of 'permanent residence' in no. 5 of art. 10 of the Personal Income Tax Code"

Decision of the Central Administrative Court South, of 07-04-2011, reported by His Excellency Judge José Correia, within the scope of case no. 04550/11:

"I. The concept of tax domicile established in the provision of article 19 of the General Tax Law, namely in its no. 1 is a special domicile that refers to a determined place for the exercise of rights and compliance with duties provided for in the provisions of tax law which, being special, is independent of the provision of article 82 of the Civil Code, although ideologically and in its essence the provision of that first statutory text connects with the need for the taxpayer and the Tax Administration to be in contact whenever necessary for the exercise of their respective rights and duties, in homage to the principle of collaboration contained in art. 59 of the General Tax Law"

II – The domicile of taxpayers may and should be corrected ex officio on the basis of elements that were at the disposal of the tax administration in observance of the provisions of no. 6 of the said provision because that is exactly what it is: a power-duty, intended first and foremost to protect tax truth in implementation also of the said principle of collaboration enshrined in art. 59 of the General Tax Law".

If as we have just stated the non-identity of tax domicile does not by itself preclude de facto united from the application of the regime provided for in article 14 of the Personal Income Tax Code, it appears to us to be nevertheless necessary, in addition to the obvious signature of the income tax declaration by both taxpayers, and indication in the appropriate field in Personal Income Tax declaration model 3 "de facto united", the existence of de facto union.

In this segment the Applicants assert and as already signaled, that "they have lived in a de facto union since the beginning of 2010 (cf. article 1 of the request for arbitral decision), and that "only in January 2014 did the now Applicants come to have the same tax domicile" (cf. article 4 of the request for arbitral decision).

In exercise of their right to prior hearing as a result of the TA having understood the non-compliance with the requirements provided for in article 14 of the Personal Income Tax Code, namely the "de facto union" the Applicants proceeded to attach their birth certificates and that of their daughter C..., as well as an "administrative justification", issued by the Parish Council of ..., of the municipality of Sintra, embodied in document number 5 A attached with the initial petition, where, among other things, it is stated that the Applicants have lived "in a situation of de facto union since 20-11-2012"

Well:

Revisiting Law no. 7/2001, of 11 May and for purposes of proof of de facto union, no. 2 of article 2 A) added by Law no. 23/2010, of 30 August, provides:

"In the case of proving de facto union by declaration issued by the competent parish council, the document must be accompanied by a declaration of both members of the de facto union, under commitment of honor, that they have lived in de facto union for more than two years, and by copies of the complete birth registration certificate of each of them".

Having arrived at this point, the issue that is urgent to consider and decide is whether the documents attached by the Applicants (both in the present case and within the scope of the attached administrative file) as well as the declaration / statement (document no. 5) by them issued, and signed on 28 July 2015, only by Applicant B..., satisfy the objective contained in the cited article 2-A of Law 7/2001, of 11 May.

Although the tribunal is not insensible to the observations made by the TA regarding the documentary evidence presented by the Applicants, concerning their de facto union, (in particular, birth certificate of C..., and "administrative justification" issued by the Parish Council of ...), the truth is that no serious reasons are apparent to cast doubt on the declaration issued by the administrative entity in question, particularly since in accordance with its statements, the same was based on "documentary and testimonial evidence which is archived in this Parish Council".

A different matter is the absence of the "declaration of both members of the de facto union, under commitment of honor, that they have lived in de facto union for more than two years (....)" provided for in the final part of no. 2 of article 2-A of Law 7/2001, of 11 May (in the updated version)

It appears to us, unless we are mistaken, that such declaration, and fundamentally the declaration under "commitment of honor" apart from its eminently formal character has to do with the responsibility and occurrence of the crime of false statements (article 256 of the Penal Code) of the taxpayers when they state they live in a de facto union, that statement not corresponding to the truth.

In our view, and following the position that is subscribed to as to the character of relativity as to the verification of the identity of domicile that above was anticipated, the declaration in question will constitute a formality ad probationem, understood as capable of being supplied by other means of proof, and of instrumental and accessory character, since it would always be possible, in light of the provision of no. 1 of article 2-A of article of Law no. 7/2001, of 11 May to prove the de facto union "by any legally admissible means".

Reiterating that no reasons are apparent that would undermine the credibility of the declaration issued by the Parish Council of ..., it must be considered that, at least since 20/11/2012 the Applicants have lived in a de facto union, this Single Arbitral Tribunal understanding, in the same manner as has already been stated within the scope of case no. 142/2017-T of 2017/07/10, of CAAD, that such fact is revealed to be legally more relevant than the failure to communicate to the TA the identity of tax domiciles.

Thus, the assessment acts that are the subject of the present case are based on error in their factual and legal assumptions, and should, in consequence, be annulled.

III – INDEMNITY INTEREST

In accordance with the provision of subparagraph b) of article 24 of RJAT the arbitral decision on the merits of the claim, regarding which there is no remedy or appeal, binds the tax administration as of the end of the deadline provided for remedy or appeal, with the latter being required, in the precise terms of the favorable arbitral decision to the taxpayer and until the end of the deadline provided for the spontaneous performance of the sentences of the tax courts, to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary to do so", which is in line with the provision of article 100 of the General Tax Law, applicable ex vi subparagraph a) of no. 1 of article 29 of RJAT, which provides:

Article 100

Effects of favorable decision to the taxpayer

"The tax administration is obligated, in case of total or partial allowance of the claim, judicial impugnation or appeal to the benefit of the taxpayer, to the immediate and full reconstitution of the legality of the act or situation that is the subject of the dispute, comprising the payment of indemnity interest, if applicable, as of the end of the deadline for performance of the decision."

Although article 2, no. 1, subparagraphs a) and b) of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals that function under the aegis of CAAD, making no mention of condemning decisions, it should be understood that the powers that in the process of judicial impugnation are attributed to tax courts are included in its competences, and this is the interpretation that is in harmony and consonance with the sense of legislative authorization on which the Government based itself in approving RJAT, in which it proclaims, as the first guideline, that "the tax arbitral process must constitute an alternative procedural means to the process of judicial impugnation and to the action for recognition of a right or legitimate interest in tax matters."

The process of judicial impugnation, despite being fundamentally a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of indemnity interest, as follows from article 43, no. 1 of the General Tax Law, in which it is established in the following sense: "indemnity interest is due when it is determined, in a claim or judicial impugnation, that there was an error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due" and of article 61, no. 4 of CPPT (in the form given to it by Law no. 55-A/2010, of 31 December) in the sense that "if the decision recognizing the right to indemnity interest is judicial, the deadline for payment is counted as of the beginning of the deadline for its spontaneous performance."

In light of what has been said, no. 5 of article 24 of RJAT in stating that "the payment of interest, regardless of its nature, is due, in the terms provided in the general tax law and in the Code of Tax Procedure and Process", should be interpreted in the sense of allowing recognition of the right to indemnity interest in the tax arbitral process.

In the case at hand the illegality of the tax acts affecting the assessments is manifest, and the amounts should be returned increased by the respective indemnity interest.

IV – DECISION

In accordance with the above, this Single Arbitral Tribunal decides to:

(i). judge the request for arbitral decision to be well-founded, declaring the illegality of the Personal Income Tax assessment acts for the year 2014, with nos. 2017... and 2017..., with their consequent annulment,

(ii) condemn the TA to the restitution of the amount of Personal Income Tax unduly paid or withheld and to the payment of indemnity interest to be calculated thereon,

(iii) condemn the Respondent to the payment of the costs of the case.

V – VALUE OF THE CASE

In accordance with the provisions of articles 296 nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 47/2013, of 26 June, 97-A) no. 1, subparagraph a) of the Code of Tax Procedure and Process, and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €14,508.05.

VI – COSTS

In accordance with the provisions of articles 12, no. 2, 22, no. 4 of RJAT, and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached thereto, the amount of costs is set at €918.00.

LET IT BE NOTIFIED

Text prepared by computer, in accordance with the provision of article 131 of the Code of Civil Procedure, applicable by referral from article 29, no. 1, subparagraph e) of the Regulatory Regime of Tax Arbitration, with blank verses, and revised by the arbitrator.

The wording of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Fifth of April of two thousand and eighteen

The arbitrator

(José Coutinho Pires)

[1] The values of the assessments, as well as the identification, different from those mentioned in the request for arbitral decision, resulted from correction made by the Applicants, as a result of clarification requested by the tribunal.

Frequently Asked Questions

Automatically Created

What are the IRS tax implications of common-law unions (união de facto) under Portuguese tax law?
Common-law unions (união de facto) in Portugal have significant IRS tax implications under Article 14 of the IRS Code and Law 7/2011. Partners living in a recognized common-law union can opt for joint taxation, similar to married couples, which may result in more favorable tax treatment. However, to qualify, partners must meet strict requirements: they must have lived together for at least two years, have identical fiscal domiciles registered with the Tax Authority for the two years preceding the tax year, and neither can be married to another person or in another common-law union. The joint filing option can provide tax benefits through income splitting and combined deductions, but failure to meet the formal requirements—particularly the two-year identical fiscal domicile rule—will result in the Tax Authority rejecting joint filing and issuing separate assessments, potentially with significant financial consequences.
How does the requirement of identical fiscal domicile (identidade de domicílio fiscal) affect IRS taxation for unmarried couples in Portugal?
The requirement of identical fiscal domicile (identidade de domicílio fiscal) is a critical formal prerequisite for unmarried couples to file joint IRS returns in Portugal. Article 14 of the IRS Code requires that common-law partners have the same registered tax domicile for the two years immediately prior to the tax year for which they wish to file jointly. This is not merely about actually living together; it requires formal registration and updating of the tax domicile in the Tax Authority's Taxpayer Registration and Management System. As demonstrated in CAAD Decision 569/2017-T, even if a couple has actually cohabited for many years and has children together, if they only register the same fiscal domicile in year X, they cannot file jointly for year X because the two-year prior registration requirement is not met. The Tax Authority strictly enforces this requirement as part of anti-fraud measures, meaning taxpayers must proactively update their fiscal domicile information well in advance of seeking joint taxation benefits.
What does Article 14 of the Portuguese IRS Code require for common-law partners to file joint tax returns?
Article 14 of the Portuguese IRS Code establishes specific requirements for common-law partners (unidos de facto) to file joint tax returns. First, the couple must be living in a common-law union as defined by Law 7/2011 of 11 May, which requires cohabitation for more than two years in conditions similar to marriage. Second, both partners must have identical fiscal domiciles registered with the Tax Authority for the two years preceding the tax year in question—actual cohabitation alone is insufficient; the fiscal domicile must be formally registered and updated in the tax system. Third, neither partner can be married to another person or in another common-law union. Fourth, the option for joint taxation must be expressly indicated in the IRS declaration (Model 3, field 6). The Tax Authority interprets these requirements strictly, particularly the two-year identical fiscal domicile rule, emphasizing that timely communication of domicile changes is a fundamental taxpayer obligation essential for preventing fraud and tax evasion.
Can taxpayers challenge IRS corrections that disregard their common-law union status before the CAAD arbitral tribunal?
Yes, taxpayers can and do challenge IRS corrections that disregard their common-law union status before the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal. CAAD Decision 569/2017-T is a direct example of this, where taxpayers contested separate IRS assessments totaling €14,508.05 after the Tax Authority rejected their joint filing. Under the RJAT (Legal Regime for Administrative Arbitration) established by Decree-Law 10/2011, taxpayers can request the constitution of an arbitral tribunal to challenge tax assessments, including those involving the denial of common-law union status. The arbitration process provides an alternative to court litigation, typically with faster resolution. Taxpayers must submit a detailed arbitration request identifying the contested assessments, the legal grounds for challenge, and supporting documentation (such as birth certificates, parish council certificates, and proof of cohabitation). The Tax Authority then submits a response defending its position, and an arbitrator is appointed to issue a binding decision on the legality of the assessments.
What was the outcome of CAAD arbitral decision 569/2017-T regarding IRS assessments and common-law union recognition?
While the complete outcome of CAAD Decision 569/2017-T is not fully detailed in the excerpt provided, the decision addressed a fundamental conflict between the Tax Authority and taxpayers regarding common-law union recognition for IRS purposes. The taxpayers, who had cohabited since 2010 and had a child together in June 2010, registered the same fiscal domicile only in January 2014 and filed a joint return for that year. The Tax Authority rejected the joint filing and issued separate assessments, arguing that the two-year identical fiscal domicile requirement was not met for the 2014 tax year. The taxpayers challenged this, arguing their actual relationship status should prevail. The case centered on interpreting whether the substantive reality of a long-term common-law relationship could overcome the formal administrative requirement of two years of registered identical fiscal domicile. The decision would determine whether strict compliance with registration formalities prevails over the substantive existence of a qualifying relationship, with significant implications for how Article 14 of the IRS Code should be applied to common-law couples in similar situations.